10 Things You Must Consider Before Incorporating a Business

If setting up a corporation in the State of Ohio is right for you and your business needs, there are several factors that you should understand. This article will focus on the issues related to a for-profit corporation in the State of Ohio and present ten things to consider when deciding to incorporate a business.

The 10 factors are:

1. What paperwork will I need to file to create a corporation and where will I file this paperwork?
You will have to prepare and file a document titled Articles of Incorporation. The Articles of Incorporation spell out the purposes and describe the corporation’s intended activities. The articles establish the types of shares and the ownership and control powers that go with the corporation’s shares of stock. While owners can prepare and file these documents, the better practice uses the work and review of legal experts. Experienced attorneys that specialize in corporate law and related matters have a reservoir of knowledge and experience that makes them an essential part of the corporate team. They can anticipate issues and problem areas and help navigate a smooth course towards the development of a business. Once you have completed filling out the Articles of Incorporation, you will then file this document with the Ohio Secretary of State. Depending on how the document is filed, the Ohio Secretary of State will typically process this filing within one to seven business days.

2. Who are the owners of a corporation?
The owners of a corporation are referred to as shareholders. A corporation may have just one shareholder or many shareholders. The primary duties of a shareholder are to elect the directors of the corporation and to vote on major corporate decisions – such as the sale of substantially all of the corporation’s assets.

3. How should I go about selecting a Business Name?
The Ohio Secretary of State requires that each business in the state of Ohio has a business name that is distinguishable from the names of other Ohio businesses. Business owners should invest time and effort in selecting a business name that fits well with the planned activities of the business. The Ohio Secretary of State has a link on its website which will allow you to search whether a name is or is not available. It is also recommended that you check the U.S. Patent and Trademark Office’s federal trademark database in order to determine if a business already has federal or nationwide trademark rights to your proposed business name. The laws in Ohio will also require that your business name end with a corporation identifier – such as Incorporated, Inc, Company, Co, Corporation, or Corp.

4. What will the Purpose of your Corporation be?
It is important to think about what the business purpose of your corporation will be. The corporation may have a purpose to conduct any lawful business or a specific business purpose may be stated. For example, a specific business purpose could be to own, operate, and manage residential real property. When a company has a specific business purpose, then the corporation will not have the authority to conduct or perform business outside of this specific purpose – such as opening a retail store, online business, etc.

5. What types of Shares of Stock will be Authorized?
The shares of stocks represent the ownership of the corporation. Stocks represent control through voting and selecting directors. Many companies issue one type of stock, and it represents the ownership and voting rights provided in the articles. Companies can create types of stock that can vote, cannot vote, or represent ownership of the corporation’s wealth. Companies can use types or classes of stock allowed by the state such as common stock, preferred stock, and voting or non-voting stock. You will have to determine if the shares of stock in the corporation will be common or preferred shares of stock. You will also have to determine if the shares will have any par value. It is typical that preferred shareholders have no voting rights but that preferred shareholders have a priority in receiving profit distributions. In my experience, most of my corporate clients have authorized common stock with no par value.

6. What is a Statutory Agent?
When preparing the Articles of Incorporation for your business, you are not required to list or provide the address of where your business will be operated. Instead, you will be required to name a statutory agent. The name and address of the statutory agent is a public record. The statutory agent is a person who will receive mail at its address on behalf of the corporation. In my experience, the statutory agent is usually one of the corporation’s shareholders, the corporation’s attorney, or the corporation’s accountant. The statutory agent can expect to receive junk mail and solicitations but very important paperwork may also be mixed in – such as the service of a lawsuit, correspondence from the Department of Taxation, etc. It is also important that if the statutory agent ever moves that the statutory agent update his/her/its address with the Ohio Secretary of State.

7. What is an Incorporator?
Since the corporation has yet to exist and, as a result, does not yet have shareholders, someone has to sign the Articles of Incorporation to be filed with the Ohio Secretary of State. This person is named an incorporator. The incorporator does not have any ownership or management responsibility within the corporation. In my experience, the incorporator(s) is usually going to be one of the shareholders of the corporation or the corporation’s attorney. Once the Articles of Incorporation have been accepted by the Ohio Secretary of State, the incorporator’s next task is to call the first meeting of the shareholders and receive the shareholder’s subscriptions for the corporation’s shares of stock.

8. What other issues should be considered?
While the form prepared by the Ohio Secretary of State may seem quite simple, setting up a corporation, in practice, is actually quite complicated. The factors discussed within this article need to be considered along with many other issues. If a corporation will have more than one shareholder, then the incorporator(s) should consider if the shareholders will have the right to cumulatively vote for directors and obtain preemptive rights in the issuance of new shares – to name a few such issues. As it relates to cumulative voting, imagine that the ownership is split 51/49 and the corporation has two directors. With no cumulative voting, each shareholder votes all of his/her shares for each director candidate. With no cumulative voting, the minority shareholder will lose both director elections 51/49. However, if cumulative voting is allowed, then the minority shareholder will have the authority not to vote any of his/her shares for the first director candidate and, in essence, accumulate his/her votes for the second director candidate. This will result in the first director being elected 51/0 and the minority shareholder electing the second director candidate 98/51. Depending on the amount of shares owned by the respective shareholders and the number of directors up for election, cumulative voting may provide the ability of a minority shareholder to elect a director to the board of directors.

9. Will the Ohio Secretary of State charge a Filing Fee?
The Ohio Secretary of State charges a filing fee of $99.00 if the corporation will have 990 or fewer authorized shares. If a corporation desires to have more than 990 shares of authorized stock, then the Ohio Secretary of State has a calculator in order to determine the additional cost of the filing fee.

10. Who Will Prepare Your Articles of Incorporation?
One of the soon to be shareholders of the corporation may prepare and file the articles of incorporation or an attorney may be retained to assist in the incorporation process. If you wish to retain an attorney, you will want to know if the attorney practices business or corporate law, what percentage of the attorney’s practice is devoted to business or corporate work, on average how many businesses will the attorney incorporate in any given year, etc. The point is that you want to make sure that you are retaining an attorney that regularly represents business owners. If you request the services of an attorney, make sure you ask what all services the attorney will provide, what is the time frame in providing such assistance, and what will the attorney charge for such services – it is typical for an attorney to charge a flat legal fee when assisting with the incorporation of a corporation.

Do you have questions about incorporating a business?

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Chris Corpus

Founding Partner at Corpus Law Inc